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Super Typhoon Haiyan Puts Philippines ETF in Focus

Although 2013 has been pretty devoid of big natural disasters, a potential megastorm in the Pacific could definitely change that in short order. The ‘super typhoon’ Haiyan is looking to make landfall on Friday in the island nation of the Philippines, and it may wreck havoc in the central part of the country.

That is because the storm is expected to be one of the most severe this year—if not ever—with center wind speeds reaching 133 mph, and gusts hitting 155 mph. Thanks to this incredible wind speed, the storm is rated as a category five, suggesting that a huge level of damage is possible.

This is especially true given that that storm surges may hit as high as 20 feet, while it could also impact an area of the nation—the Bohol province-- that was recently hit by an earthquake, further compounding the devastation. So while the Philippines is probably used to the threat of typhoons, this looks to be a historic storm that could find its way into the record books (read Emerging Market ETFs: How to Pick Winners).

"The humanitarian impact of Haiyan threatens to be colossal, not only in areas directly in its path, but also for nearby islands such as Bohol," said Patrick Fuller of the International Federation of Red cross and Red Crescent Societies in a Reuters article.

ETF Impact

Investors should note that this storm looks to also have a huge financial impact, and especially for those that are buying into Philippine equities. In particular, the iShares MSCI Philippines ETF (EPHE) looks to be in focus.

This ETF is currently the only product trading in the U.S. market that has a focus on the Philippines, tracking the MSCI Philippines Investable Market Index. This benchmark gives investors access to 40 stocks in the Philippine market, and is designed to measure the broad performance of equity securities listed on the stock exchanges in the Philippines.

This product is heavily into financials, as close to 43% of the portfolio goes to this sector. Beyond that, Industrials (20%), consumer staples (10.6%), and telecoms (10.3%), round out the rest of the top four sectors (see 3 Emerging Market ETFs Surviving the Slump).

It is also worth pointing out that no single security accounts for more than 10% of the total assets, though the top ten holdings account for nearly 63% of the fund. Some of the top holdings include Ayala Land (9.3%), Philippine Long Distance Telephone (7%), and SM Investments (6.7%).

Recent Performance

EPHE lost about 3.2% in Thursday trading, on volume that was elevated. This threatens to continue the recent trend for EPHE, as the product had lost about 18% in the past six months, though the ETF is pretty much flat YTD.

The fund, much like other emerging Asia ETFs like ASEA and GMF, had to endure tapering fears, and it hasn’t really been able to bounce back all the way after the summer sell-off. Still EPHE was holding up pretty well in recent trading, and there was some hope that this trend would continue after the Philippines received a boost in its rating from Moody’s, though the storm may derail a recovery (see all the Asia Pacific Emerging ETFs here).

Bottom Line

The Philippines was starting to come back, as investors were starting to feel more bullish about the nation’s finances, and emerging markets in general. After all, the taper appears to be on the back burner for the time being, and this is boosting investor perception of quickly-growing emerging markets.

However, the storm barreling towards the Philippines could change all of that very quickly. The super typhoon Haiyan may leave a path of destruction in its wake, and devastate a large part of the island nation if current predictions hold (see all the Top Ranked ETFs here).

So investors who are either in EPHE or any company that does a lot of business in the nation, should definitely hope that the worst doesn’t come to pass with this incredible weather event, which is shaping up to be a historic storm, and a huge event for the Philippines.